There’s nothing mysterious about offshoring and outsourcing. The 19th century economist David Ricardo defined the essentials when he formulated the principle of comparative advantage.
Ricardo recommended that every nation should specialise in what it was best at producing – and rely upon international trade for everything else. The resulting efficiencies, Ricardo argued, would enhance the ‘general benefit’and the ‘happiness of mankind”.
Outsourcing is a corporate manifestation of the same urge. It’s what the textile weavers of Nottinghamshire did in Ricardo’s day. It’s what news agencies and freelances have always done. And now, it’s what India, a nation that churns out 2.5 million new English-speaking workers every year, is doing, too.
Outsourcing is all about sub-contracting activities to a specialist supplier on a long-term basis. The more recent phenomenon of offshoring involves shifting work to lower cost countries. Companies can do one, or the other, or both.
When you call Lambeth Council about council tax, you’ll end up chatting with, or shouting at, London-based employees of Capita (that’s outsourcing). Call HSBC about your account balance and you’ll discuss it with a company employee in Bangalore (that’s offshoring).
Read a supplement published by the Irish Independent and you’ll experience both phenomena. The copy is edited and produced by an outsourced supplier based offshore (in Toulouse, of all places).
Is there anything new in this? The answer is yes, partly because of the sheer scale of what’s happening. According to the US research institute Forrester, Europe could lose 1.2 million jobs to overseas by 2015.
Alan Blinder, a professor of economics at Princeton University, forecasts that as many as a third of US jobs could ultimately be shipped overseas. ‘Workers in rich countries,’he suggests, will ‘find other things to do”. The main factors in this unfolding drama are low-wage globalisation, cheap bandwidth and digitisation.
Typically, offshoring is undertaken by massive Indian companies you’ve never heard of. The largest players include Tata Consultancy Services (three times the size of Trinity Mirror), Infosys Technologies (about the same size as ITV), and Wipro (slightly bigger than the Daily Mail and General Trust).
These already sizeable companies have been growing rapidly for more than a decade. Even so, their revenues will expand by 30 per cent to 40 per cent this year.
Behind them sits a new wave of media offshoring companies including Cybermedia, Mindworks Global Media and Conversant Info Solutions. They all got their start when the Indian government liberalised the economy in the Nineties.
The same low wages that allow Primark to sell sweatshirts produced in Bangladesh for £6 in a 70,000 square foot store on Oxford Street were a major attraction.
They still are. In India, call centre operators earn between 60p and £1.25 an hour. In the UK, their counterparts generally work for slightly more than the minimum wage of £5.52. Similar differentials apply right up the scale to professional-grade roles.
None of this would be possible without dirt-cheap bandwidth. The global build-out of internet capacity has brought us the delights of streaming video and online gaming. But it has also massively increased the amount of goods that can be traded across borders.
Any output that can be digitised into binary noughts and ones has become fair game for offshoring. And the cost of data transmission is falling towards zero. You can bet that the effects of this transformation are going to be far-reaching.
Our parents told us that education was the way to make ourselves desirable employees. But that’s no longer necessarily the case. Increasingly for white-collar workers, the key thing is doing work that can’t be squirted down a wire.
On this basis, the media looks like a perfect candidate for offshoring. Because it’s a people-intensive business, cutting the wage bill is often the quickest route to profitability.
In addition, the disruptive challenge of the internet is forcing managers to worry whether they are – in the words of Jeff Jarvis – ‘wasting money on commodity news, ego and inertia”.
Consider, too, Guardian investigations editor David Leigh’s prediction that news bunnies will inherit the earth. These ‘high-speed, short-legged creatures of the internet age’don’t get out much.
So why shouldn’t their output be emulated by low-cost journalists in Mumbai?
Deadlines aren’t necessarily a problem. On behalf of clients in the software industry, the leading offshore players have developed production cycles that ‘follow the sun’around the globe. In a world where instant web updates are becoming increasingly important, the attractions are obvious.
As for cultural nous, well, the offshoring companies have thought about this, too. That’s why call centre workers in Bangalore watch Eastenders and take lessons in Estuary English.
If they aren’t already, their counterparts will soon be writing earnings reports for Reuters and Thomson Financial. Warmed-over stories about Russell Brand shouldn’t be a problem, either. India knows all about the cult of celebrity.
As for crosswords, digital archiving, TV and entertainment listings, routine video editing, closed captions, supplements and share prices – the remarkable thing is that so many of these tasks are still carried out in the UK.
The media industry has actually been highly conservative in its approach to offshoring.
Now executives are asking: What are the risks? Compared with those being run by banks, which hand over sensitive customer information to low-paid workers on the other side of the world, they’re minimal.
Of course, some readers might be concerned. But as the rammed aisles at Primark demonstrate, our collective love affair with low cost globalisation is all-conquering.
A dozen major news organisations are known to be testing the water. Many more are quietly sizing up the opportunity. PR companies and advertising agencies are doing the same.
Most know that offshoring must become part of the sector’s efforts to live with reduced revenues in a digital world.
The likelihood is that they’re just waiting for the right moment to break the news gently.
Peter Kirwan, a journalist and publisher, is editor of Fullrun (www.fullrun.com), supplying information and analysis for marketers and media owners